How Much Life Insurance Do You Really Need?

By Matthew Gaude & Shawn McGuire

When planning for the future, many people neglect to consider life insurance’s role in their financial strategies. Instead, they focus on growing their wealth and neglect to take the steps to protect and preserve their assets. In 2017, more than 4 in 10 people didn’t own a life insurance policy in any amount and 40% of those who did said they were under-insured.1 Most of us know that we should have life insurance, but we usually don’t have a clear picture of what we really need. Unfortunately, there isn’t a one-size-fits-all answer to the question of “How much life insurance do I really need?” But thankfully, there are a few factors you can review and analyze to help you determine your life insurance needs.

Do You Need Life Insurance?

The first question you need to answer is whether or not you even need life insurance in the first place. You’ll want to determine if you have enough money saved so that your death would not create a financial hardship for your loved ones. A single young adult with no dependents may not need life insurance if his loved ones can easily afford a funeral and burial. If you have several million dollars safely stored away, your death may not cause a financial hardship either, even if you still have a family depending on you.

If you don’t have enough money saved, you should purchase life insurance to protect your family in case you pass away. Even if you do have enough money saved, you may still want to consider purchasing life insurance for other benefits that it can provide, such as living benefits and diversification.

What Type Of Life Insurance Do You Need?

Along with knowing how much coverage you need, you’ll also need to choose the kind of life insurance that is most appropriate for your situation. The two primary types of life insurance are permanent and term.

Permanent Insurance

Permanent insurance is coverage that is not limited to a specific duration of time, meaning it can potentially last your entire life. There are several types of permanent insurance, including Universal Life, Indexed Universal Life, and Whole Life. The benefit of permanent insurance is that it can last longer than a term policy so that something will be paid to your beneficiary no matter when you die (assuming your policy has been funded properly). This type of insurance is more expensive than term insurance.

Term Insurance

Term insurance offers coverage for a specified length of time, which can be anywhere from 10 to 35 years in some cases. The downside to term insurance is that it only covers you for the specified period of time, so if you pass away after the term is over, no money is paid to your beneficiary. But depending on your situation, you may only need insurance for a specific term — until your kids are grown or you have enough money saved to avoid financial hardship. One of the major benefits of term insurance, as opposed to permanent, is that it is usually the most inexpensive out-of-pocket option.

How Much Life Insurance Do You Need?

Finally, the question at the forefront of your mind. You’ll want to conduct a needs analysis, which can help you understand how much coverage you would need to protect your family adequately. Two of the major factors that affect how much insurance you need are your marital status and your financial dependents.

If you are single without anyone — child or parent — depending on you financially, you’ll want enough to cover funeral and burial costs. It’s also important to have enough to cover debts, because not all debts are discharged in death, such as private student loans.

If you are married, use the DIME method to consider your needs:

• Debt and final expenses• Income• Mortgage• Education costs

After calculating and totaling each of those dollar amounts, apply an income replacement multiplier to determine your needed coverage amount. The multiplier varies based on your age and the status of your home mortgage. For example, if you’re under 50 years old, you can likely use a multiplier of 20. Older couples may be able to use a multiplier of 10 or 15, depending on the number of years left on their mortgage.

Keep in mind that these are just guidelines designed to give you a general idea of the amount of insurance coverage you need. There may be adjustments for your particular situation and what makes the most sense for your family.

Stay-at-home parents can also benefit from life insurance. While they don‘t generate income, the services they provide would have to be purchased if they were to pass away. Many stay-at-home parents care for their children, cook, maintain the house, and more, so their spouse needs enough insurance coverage to pay someone else to do the same if they are gone.

What’s The Right Choice For Me?

Life insurance can be confusing and it’s difficult to know if your policy is doing what it’s intended and customized to your needs and circumstances. At Live Oak Wealth Management, our focus is to secure, maintain, and protect the financial lifestyle of our clients, and insurance is an important piece of that puzzle. Through an insurance review, we identify risks, such as death, health and disability, and long-term care. We help you calculate the financial impact on you and your family, should one of these risks happen, to ensure everyone is adequately and appropriately protected. If you are concerned about your life insurance policy or would like to schedule a review or discuss your options, schedule an appointment online.

About Matthew

Matthew Gaude is an *investment advisor representative and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. Working first as a commodity broker and then as a Business Development Manager for a national broker-dealer in previous jobs, he has the insights and experience to help clients understand the complexities of the market and implement strategies to minimize risk. To learn more about Matthew, connect with him on LinkedIn or visit www.liveoakwm.com.

About Shawn

Shawn McGuire is a financial advisor and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. He has worked in financial services since 2002 in positions ranging from financial advisor to stock broker and portfolio manager. As a CERTIFIED FINANCIAL PLANNER™ professional, he is trained to help clients with virtually all their financial needs. To learn more about Shawn, connect with him on LinkedIn or visit www.liveoakwm.com.

Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.

Securities offered through American Portfolios Financial Services, Inc., member FINRA/SIPC. *Advisory Services offered through American Portfolios Advisors, Inc., a SEC Registered Investment Advisor. Live Oak Wealth Management, LLC is independently owned and not affiliated with APA or APFS.